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Under The Hood: A Decade After ‘Software Is Eating The World,’ Andreessen Horowitz Has Its Best Exit Year Yet

A decade after one of its co-founders wrote the five words that would go on to define the future of Silicon Valley — “software is eating the world” — the venture firm Andreessen Horowitz is having its best exit year yet.

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A16z — as the firm is also known, for the 16 letters between the A in founding partner Marc Andreessen’s name and the Z in Ben Horowitz’s — is closing out the first half of 2021 with its biggest exit yet, Coinbase’s direct listing, under its belt.

The firm has also substantially increased its investment pace this year, our analysis shows, leading or co-leading funding rounds worth $3.2 billion and participating in another $8.4 billion in deals, just halfway into 2021.

Given that Andreessen Horowitz, founded in 2009, has now been investing for longer than a decade and shows no signs of slowing down, we decided to do an analysis of the firm’s investment track record and its returns over time. All told, we found that a16z has now made just under 1,000 investments in 564 portfolio companies. That portfolio has produced 160 exits, of which 20 went public, per Crunchbase data.

Andreessen Horowitz, which often has a combative relationship with mainstream media outlets, declined to be interviewed for this article, citing in part its status as an investment adviser and securities rules around disclosures. The firm also declined to answer specific questions or to fact-check our analysis.

Hindsight is 20/20

A few months after the close of a16z’s $1.5 billion Fund V in 2016, an article in The Wall Street Journal claimed that the firm, then with more than $6 billion under management, was producing less-than-stellar returns that trailed those of top-tier venture firms like Sequoia Capital and Benchmark.

Menlo Park-based Andreessen Horowitz and other investors in the Valley were quick to respond, pointing out that returns typically take seven to 10 years and that a16z’s first fund of $300 million had been raised just seven years earlier, in 2009.

A16z Managing Partner Scott Kupor wrote a blog post in response to the Journal article countering that it’s difficult to value illiquid, private companies, muddying easy comparisons between firms. “Only real, actual cash and stock distributions matter,” he wrote. “Venture capital is a long game.”

Mark Suster of Upfront Ventures chimed in too: “A16z could be sitting on several deals that could be worth 15x what they are today. Or not. We can’t know.”

Indeed, at the time, a16z had already invested in Lyft, Airbnb, Pinterest, Coinbase, Slack and Okta — all companies that have since gone public — as well as Stripe, valued at $95 billion, one of the most highly valued private tech startups in the world. The firm had already invested as well in Instacart, now valued at $39 billion, and Robinhood, currently valued at roughly $11.5 billion.

Public debuts

All told, a16z has now been an investor in 17 companies that have gone public above $1 billion, the most highly valued of which include Facebook and Coinbase as well as Airbnb and Roblox.

General Partner Chris Dixon led the firm’s first investment in Coinbase, its largest exit, in its Series B funding of $25 million in December 2013. The company has invested in every significant funding round in Coinbase, according to an announcement on the direct listing, and also purchased stock from Union Square Ventures. The firm invested from Fund III, its CNK Fund and its first late-stage fund, according to the Coinbase SEC filing.

Other significant institutional investors in Coinbase include Union Square Ventures and Ribbit Capital.

But a16z was the largest institutional investor in Coinbase before the direct listing, with its stake worth more than $6 billion based on the company’s June 16 market capitalization. (The stock price is down significantly from when it went public in April and Coinbase was valued north of $80 billion.)

Prior to this billion-dollar exit, a16z had already closed on $4.5 billion in two new funds in November 2020 and now has a total of $16.5 billion under management.

This single investment returns these funds — and then some.

While the firm was an early investor in Facebook and Airbnb — and a later-stage investor in Roblox — it is not listed as a stockholder with at least a 5 percent stake in those companies’ regulatory filings. In Facebook, it had 3.57 million shares per the SEC filing tied to Marc Andreessen joining the board in 2008 — not disclosed as part of a funding round and far less than the leading institutional investors.

In Twitter, the firm invested $80 million via a secondary financing announced by AllThingsD, again not meriting notice in Twitter’s S-1 filing.

Notable public debuts where a16z has owned more than 5 percent include Okta, Coinbase, Lyft, Slack, Pinterest, DigitalOcean and PagerDuty. Okta, which went public in 2017, was valued at $1.5 billion at its IPO and is now worth $29.6 billion — almost 20x more than when it went public.

In an increasingly competitive field for investors, many venture capital firms are becoming more interested in value creation in the public markets, while at the same time many hedge funds have added private-equity arms to invest in pre-IPO companies, two trends we have covered at Crunchbase News here and here.

For its part, Andreessen Horowitz applied for a Registered Investment Advisor (RIA) status in 2019 to give it more latitude to invest in different funding vehicles including the public markets as well as crypto and blockchain.

M&A exits

In total, eight of a16z’s portfolio companies have been acquired above $1 billion, with GitHub’s acquisition by Microsoft in 2018 for $7.5 billion marking the largest such deal. Andreessen Horowitz had led GitHub’s Series A in 2012.

The firm’s largest exit so far in 2021 is Stack Overflow’s acquisition by Prosus for $1.8 billion. A16z had led the startup’s Series D funding in 2015.

Record funds in 2020

Andreessen Horowitz closed on $5.8 billion in funds in 2020, the largest amount raised in any year from its founding in 2009, and one of the largest amounts raised by any single venture firm in a year.

These 2020 funds include its seventh fund of $1.3 billion — with 11 primary investing partners — and its second growth fund of $3.2 billion both announced in November 2020, according to an announcement penned by Kupor. Earlier that year it also closed its third bio fund of $750 million and its second crypto fund at $515 million, as well as an opportunity fund set up by the partners with $2.2 million to invest in underrepresented founders.

The team is now 185 members large, with 57 investment professionals who range from junior to senior team members. We find a smaller cohort that has led investments, per Crunchbase data, the most active of which include founders Marc Andreessen and Ben Horowitz as well as Peter Levine, Jeff Jordan, Martin Casado and Chris Dixon.

It shares the highest count of portfolio companies to date with seed fund SV Angel and Y Combinator. Rounding out the top six are GV, Greylock, General Catalyst and New Enterprise Associates.

Doubling down

Considering it’s a leading venture firm that has raised billion-dollar funds since 2012, a16z has not always been as consistent a follow-on investor as one might expect. Surprisingly, it raised its first billion-dollar late-stage or growth fund just over two years ago, in May 2019.

With Stripe, the most highly valued U.S. private company at $95 billion, Andreessen clearly missed an opportunity. It invested in the seed round but did not invest in Stripe again until it led its Series G in September 2019, a round that valued the firm at $35 billion and clearly leveraged said growth fund. Since then, Stripe received another $60 billion valuation hike. By contrast, Michael Moritz of Sequoia Capital joined Stripe’s board at seed, led the Series A funding, and participated in every round.

A16z has been more consistent with some of its other unicorn startups, however. We found that it invested in multiple follow-on funding rounds in Instacart in which it first invested at the Series B in 2014, and with Databricks where it first invested at Series A in 2013, as well as with many other portfolio companies.

2021

Since the beginning of 2021, a16z has substantially increased its investment pace, according to Crunchbase data. It has led or co-led funding rounds worth $3.2 billion already this year — the third highest amount for a venture firm — and has participated in funding rounds worth $8.4 billion for its portfolio companies.

The largest funding rounds it led in 2021 show the firm flexing its most recent growth fund. Those include Hopin’s $400 million Series C, Greenlight’s $260 million Series D, Current’s $220 million Series D, Loom’s $130 million Series C, and SpotOn’s $125 million Series D. All represent new portfolio companies.

The firm has added six new unicorns in 2021 to its current portfolio of 58 private unicorns — not too far behind Sequoia Capital, with 61, and Accel with 56.

On the media

Just over a decade in, Andreessen Horowitz has also solidified its place as one of Silicon Valley’s most well-known and sought-after venture firms. While it may not be the oldest or the biggest venture firm in the Valley, it is arguably the loudest and most influential.

Deliberately and consciously, its founders have spent the past decade building a16z’s brand and voice, culminating in the launch last week of its own technology publication, Future, which aims to be a forum for “rational optimism about technology and the future.”

Margit Wennmachers, an operating partner at the firm who joined in 2010 to lead its media strategy, explained the publication launch as part of a16z’s renewed commitment to “speaking directly” to its audience: “We want to be the go-to place for understanding and building the future, for anyone who is building, making, or curious about tech.”

Alongside building out that platform, Andreessen Horowitz has become one of the biggest investors in technology companies that support the creator community.

It led three rounds in Clubhouse, from Series A to Series C within a year, and Horowitz and Andreessen personally host weekly shows on the platform. The firm also led both the Series A in 2019 and the Series B round in 2020 for newsletter platform Substack. It also recently led a seed round in Beacons, a website platform for creators to bring their content together.

As a16z builds off its past decade, now with a larger voice and pocketbook than ever, the firm is betting deal flow and exits will follow. We do not doubt it.

Crunchbase Pro queries used in this article

Funding Rounds

Team

Portfolio

Shared portfolio

Unicorns

Exits

Illustration: Dom Guzman

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